Credit: Visual China

BEIJING, October 24 (TMTPost) – ByteDance's VR business subsidiary, Pico, has been scaling back its operations this year.

It has lowered its sales targets for the year, changing its focus from expanding its market share to deepening its engagement with existing users. Besides, it has significantly reduced the team size through multiple rounds of layoffs so far this year.

A departing employee said that Pico laid off many employees in February, without offering the opportunities to transfer to other positions within ByteDance. Following this, some employees feared their work prospects and either left voluntarily or sought to move to other positions in the company.

Pico was acquired by popular short video platform TikTok’s parent company ByteDance in 2021 as the latter was trying to diversify its business. Pico was the world’s third-largest virtual reality headset producer in the first quarter of 2021, with shipments growing 44.7% year-on-year, according to IDC.

According to media reports, the number of its departing employees is nearly half of 2,000, which was the headcount at its prime time in 2022 after the acquisition. Ren Lifeng, responsible for Pico's content ecosystem business, is set to leave at the end of the year, with his status within ByteDance's internal system listed as "on leave." Ren's department is experiencing a significant number of employee departures.

According to an insider, Pico’s downsizing is due to the company's strategic shift. After the acquisition by ByteDance, it adopted an ambitious strategy, setting aggressive targets without fully considering the overall weak market demand. Chinese VR sales saw a whopping decline this year, and it has adjusted its sales goals.

In 2022, Pico made a high-profile release of its consumer-grade VR product, PICO 4/Pro, not only in China but also in European, Japanese, South Korean, and Southeast Asian markets. To boost hardware sales, the prices of Pico 4 were drastically lowered, even incurring a loss of approximately 500 yuan for each device sold.

Pico's team size expanded significantly in 2022, leading to a surplus of personnel, and the integration of Pico’s old team with the new team was not smooth. There were rumors of internal conflicts within the company. The difficulties for Pico's expansion are directly related to a shrinking VR market, and this is not a problem unique to the company. Other AR/VR device companies in China are struggling.

According to IDC data, in the first half of 2023, China's AR/VR headset shipments reached 328,000 units, a 44% year-on-year decline. Pico held a 58.7% share in this market, while other brands only had a small fraction of its share. Pico failed to make timely and effective strategic adjustments in response to the current environment. The VR industry depends on popular content, but its applications and content development have been poor. The number of applications in Pico’s app store is over 530, falling behind its overseas competitors.

In September, Guo Wenshan, the head of Pico's game business in China, stated in an interview that although the number of Pico’s applications is not many, the real pressure faced by the company comes from its users. His implication was that retaining existing users and increasing their activity are crucial for the smooth operation of the company’s developer ecosystem. Only by building a richer application ecosystem can it attract more new users. However, ByteDance may not have the patience to wait.

Pico's leadership reportedly went to Singapore to report to ByteDance's management recently, and the feedback they received was that ByteDance will gradually abandon the Pico business. Nevertheless, Pico has said that the company will continue to operate normally and will maintain investments in products and technologies.